Financial Services

Meaning
Classification of Fin. Service Industry
Scope of Financial Services
Sources of Revenue
Causes for Financial Innovation
New Financial Products & Services
Innovative Financial Instruments
Classification of Equity Shares
Government Steps
Challenges for Financial Service Sector
Present Scenario
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 Meaning

In a broad sense the term “Financial Services” means

“Mobilising and allocating savings.”

It can also be called “Financial Intermediation”

It is a process by which funds are mobilised from large number

of savers to all those who are in need of it. So it is very vital for
Industrial development.

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 Classification of Fin. Service Industry

Financial Intermediaries in India can be classified in to two

Capital Market Intermediaries : Are those who provides long

term funds.
e.g. Term Lending & Investing
Institutions

Money Market Intermediaries : Are those who provides short

term funds.
e.g. Banks & other agencies

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 Scope of Financial Services

Broadly Classified in to Two Traditional and Modern

T r a d itio n a l

F u n d B a sed

U n d e r w r itin g S econ d ery D e a lin g in P a r t ic i p a t i n g i n

of S h ares & M arket F o r e ig n M on ey m arket
D eb en tu res A c tiv itie s E xchange in str u m e n ts

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 Scope of Financial Services

T r a d it io n a l

N o n -F u n d B a se d

M a n a g in g C a p ita l I s s u e A r r a n g e m e n t fo r th e A rrangem ent of F und

S h a res & D eb en tu res P la c e m e n t o f C a p ita l fo r P r o je c t F in a n c e
& d e b t in s tr u m e n ts & W o r k in g C a p ita l n e e d s

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 Scope of Financial Services

Modern Activities
a) Rendering Project advisory services
b) Planning for mergers
c) Guiding corporate customers in capital restructuring
d) Undertaking Services relating to Capital Market such
as: i. Clearing Services
ii. Registration & Transfers
iii. Safe-Custody of Securities
iv. Collection of income on Securities
e) Reconstructing of sick companies

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 Sources of Revenue

The sources by which Financial Service Company

collect revenue are of Two types :
Fund Based : It comes mainly from interest spread,
lease rent, income from investment in
capital market and real estate.
Fee - Based : This source of income is less risky.
Though it requires expertise personals.
e.g. Merchant Banking Custodial Service
and Loan Syndication etc.

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 Causes of Financial Innovations

To meet the dynamically changing needs and to help

investors to cope with continuously volatile and
uncertain market place.
The main causes are as below :
Low Profitability : In current scenario the profitability is
very low, so every institution requires
to maximize the profit by adopting
new methods and technology.
Global Impact : Many of the providers have changed
their roles all over the world and
ready to take more risks.
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 Causes of Financial Innovations

Keen Competition : More and more financial companies

entering in the market every day. So
the competition is really cut-throat.
To stay in the market and prosper a
Financial Service Co. must find out
new measures.

Economic : Due to economic liberalisation the

Liberalisation deregularisation in the form of
exchange control and interest rate
ceiling.
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 Causes of Financial Innovations
Improved Communication : With the new and fast
Technology communication methods,
even world issue can be
linked with the investor in
Global Financial market.
Customer Service : Expectation from customers
is high, they want a Fin. Ser.
Co’s is to be like department
stores of finance. Hence the
financial companies has to be
innovative enough to satisfy
customers
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 Causes of Financial Innovations

Investor’s Awareness : Now a days investor is shifting

from investing in physical assets
like gold, land to shares,
debentures etc. again from
shares they go to risk free
investments like bank deposits.
This all made Financial
Company work more harder and
compel them to find out new
ideas to keep investor intact.

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 New Financial Products & Services
Due to economic liberalisation policy, the free market
concept comes in to reality. Increase in uncertainty and
volatility become part of day to day life of individual as
well as corporate clients. To satisfy them financial sector
offer them some sophisticated
and innovative products and services. Some of them
are…..
Merchant Banking : A new improved way to satisfy
clients needs under one roof. After
SEBI’s regulation in 1992, the
Merchant Banking improving in
India.
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 New Financial Products & Services
Loan Syndication : It refers to a loan arrange by a bank
for a borrower who is usually a large
corporate customer or a Government
Department.
Leasing : It is an agreement under which
company acquires a right to make use
of assets by paying fee called rental
charges.
Mutual Fund : This is a fund raised by a financial
company by pooling the saving of
the public.
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 New Financial Products & Services

Factoring : This is a service offer by financial

service company by taking risk in the
collection of book debts for it clients.
Forfeiting : In this financial service company
discounts export bill and pay cash to
exporter.
Venture Capital : This is a project based finance and not
a traditional security based finance,
provided not only for start-up-capital
but also for development capital.
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 New Financial Products & Services

Corporate Advisory Ser.: This service is particularly set

up by Bank to its corporate
customers. Offering them
computer terminals to transact
their important banking
transactions by sitting in their
office.
Securitisation : It is a technique where financial
company convert non-negotiable
assets in to small value which are
tradable and transferable.
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 Innovative Financial Instruments

To help financial service companies for providing better

service to clients, many innovative financial instrument
come in to the Market. Some of them are as below :

Commercial Paper : It is a short term negotiable money

market instrument.

Treasury Bill : It is also money market instrument

but issued by Central Government.

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 Innovative Financial Instruments
Certificate of Deposit : Nothing but deposit receipt
given by scheduled Bank.
I. B. P.s : Inter Bank Participations, As the
name suggest this is confined to
scheduled bank only.
Zero Interest : In this bonds no interest is paid
till its Convertible Bonds
conversion
Deep Discount : These type of bonds are sold at
huge Bondsdiscount.
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 Innovative Financial Instruments
Option Bonds : This is type of bond where customer had
a choice to select cumulative or non-
cumulative.
Secured : Carry no interest for three years.
Premium Notes
Medium Term : This type of instrument is highly
Debt popular in Germany.
Convertible : Are those which can be converted in to
Bonds equity shares either fully or partially.

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 Innovative Financial Instruments
Easy Exit Bonds : This bonds enables the small investor
to encash it at any time after 18
months of its issue.
Infrastructure : This bonds issued with a view to give
Bonds tax shelter to investor. HUDCO has
issued first time such Bonds.
Loyalty Coupons: Issued for holding debt for two to
three years.
Global Depository : It is a Dollar dominated instrument
traded on Receipt stock exchange.
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 Classification of Equity Shares
On the basis of nature of shares, industries and trading
the equity shares can be called by various names. The
popular names are …
Blue Chip Shares : The companies who are well known
and well established showing
consistent growth, the shares of those
companies called as Blue Chip shares
Defensive Shares : The shares which gives stable return
than other shares and protect investor
money are called as the name
suggest Defensive shares.
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 Classification of Equity Shares
Growth Shares : These shares are related to growth of a
company to which they are relate.
Normally a fast growing company’s
shares called Growth shares.
Cyclical Vs : Cyclical shares are those whose price is
Non-Cyclical rise or fall with the state of national
economy. And the next one’s price
remains stable.
Turn a Round : These type of shares offer investor
Shares opportunity to buy it when the price is
low. The fluctuation in this shares is
high.
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 Classification of Equity Shares
Active Shares : The shares whose dealing in the market
is twice or thrice in the week are called
Active shares.

Alpha Shares : Are those which are regularly or

frequently traded in the market.

Sweat Shares : As the name suggest, these shares are

like reward given by the employer to
employee or worker for their
contribution in development of company.

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 Government Steps
To support financial service industry’s dynamic role
and to face global competition, Government taken
following steps.
1) Privatisation of public sector.
2) Free pricing
3) Fully convertible of Indian Rupee on current account
4) Authorising private sector to participate in the
Banking
5) De-regulation of interest rates
6) Allowing corporate sector to raise debt/equity in
international market
7) Signing of GATT Chapter 01
Financial Services Financial Services
 Challenges for Financial Service Sector
Although we have seen the Govt. steps to back this
sector, there are many more challenges in front of this
sector, some of them discussed below.
Lack of Qualified : This sector is fully geared with task
Personals of financial creativity. So with out
trained persons this sector suffers
from innovations.
Lack of Investors : This sector’s personals has to
Awareness educate investors by way of
seminars, workshop. By doing this
lost their valuable time.
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 Challenges for Financial Service Sector
Lack of Transparency : Being global, this sector have to
come up with international
standards and throw out old
conservative approach.
Lack of Specialisation: In India one financial
intermediary acts as super market
of financial services. This leads to
lack of specialisation.
Lack of Recent Data : Most of intermediaries having no
recent or proper information
about current market.
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 Present Scenario
Although we discussed the challenges in front of
financial service sector, the current scenario shows some
good and hopeful picture.
Conservatism to : Currently the Indian financial system is in
the Dynamism process of transformation.
The emergence of various financial
institutions & regulatory bodies helps this.
Primary Equity : The no. of stock exchange in 1980 was
just 9, Market but in 1994 it was 22. The
no. of companies listed on stock
exchange in 1980 was 2265 &in 1993 it
was over 7000.
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 Present Scenario
Concept of Credit : This concept play significant role in
identifying Rating the risk level of the
corporate entity in which the investor
wants to take part.
Process of : Realising all factors, Govt. of India
taken many Globalisation steps to reform
this industry. Free pricing, Finance Act
1992 brought large scale amendments in
the tax structure.
All this leads to better and fast growth of this sector, which
ultimately boost our economy and position in international
market.
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